Canadian real estate investment trusts (REITs) are paying very good yields following a rocky year in 2022. Investors looking to boost their retirement portfolios’ passive income may check out monthly dividend stocks in Canada, including Choice Properties Real Estate Investment Trust (TSX: CHP.UN) in September 2023. The retail REIT’s track record of income reliability is stellar, and management recently began raising monthly distributions.
Choice Properties REIT is a $4.4 billion Canadian retail property owner with growing exposure to industrial and mixed-use property economics. Its large portfolio of 702 properties comprising 63.8 million square feet of gross leasable area qualifies it a place among Canada’s top REITs and affords it access to cheap growth capital.
Most noteworthy, the stability of Choice Properties REIT’s monthly distributions during the COVID-19 pandemic earned it growing trust from income-oriented investors. Strong occupancy rates on its necessity-based grocery retail properties shielded the trust’s rental income from rent defaults. Interestingly, industrial and mixed-use residential property portfolios could be welcome sources of operating income growth over the next few years.
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A source of stable, reliable passive income to buy and hold
Choice Properties REIT paid stable income distributions and maintained strong portfolio occupancy rates above 97% throughout trying times, and that valuable quality remains intact in 2023.
The REIT maintains a valuable strategic relationship with Canada’s largest retailer, Loblaws. Loblaws is an anchor tenant with massive crowd-pulling power on most of the trust’s retail properties, representing 63% of Choice Properties REIT’s retail rental revenues and 57.1% of the REIT’s total net operating income.
The Loblaws relationship extends to a growing industrial properties portfolio, too, and the REIT’s distributions are well covered by recurring cash flow. The trust paid out 79.6% of its growing adjusted funds from operations (AFFO) during the second quarter (a significant improvement from an 81.8% payout rate seen during the same period last year).
AFFO measures a REIT’s most recurring cash operating income and Choice Properties REIT has more room to grow its monthly distributions from here. Management raised distributions for the first time in March this year, after paying a flat rate since May 2017.
Given a strong average portfolio occupancy rate of 97.4% by midyear 2023 and long lease expirations (with an average remaining lease term of 5.5 years), investors may safely expect regular monthly paycheques from the Choice Properties REIT’s real estate portfolio for many years to come.
The trust’s current monthly distribution yields 5.6% annually.
Industrial properties to drive future income growth
Choice Properties REIT derives the majority of its operating income from retail properties. However, industrial assets are a key growth driver to watch over the next 12 to 24 months.
The trust is developing a high-quality, high-demand portfolio of industrial assets focused on meeting the distribution needs of its anchor tenant, while targeting other generic industrial tenants, too.
Although the trust’s growing industrial portfolio is still small and young (representing 15% of total net operating income (NOI), the portfolio has strong near-term growth potential. In-place rental rates on Choice Properties REIT’s industrial properties were significantly lower than average market rentals going into the third quarter of this year.
For example, Choice Properties REIT was receiving $11.69 rent per square foot from Vancouver tenants in June 2023. The average rent in the region was $22.09 per square foot. The same scenario was in play in the Greater Toronto Area where the REIT charged $8.34 per square foot while the market had already gone as high as $18.26. Overall, the trust’s average in-place rent on industrial assets of $8.57 during the second quarter was nearly half the average market rent of $16.35, as reported by consultancy firm CBRE Research.
There is significant room for Choice Properties REIT to earn more rent upon future lease renewals and on new leases.
